A change in taxes shifts the aggregate demand curve by less than a change in government spending for goods and services and has a smaller effect on real GDP.

Question

Quizplus · Accepted Answer

This is because a change in taxes directly affects disposable income, which then affects consumer spending. On the other hand, a change in government spending directly affects aggregate demand. However, both changes can still have an impact on real GDP.

A Change in Taxes Shifts the Aggregate Demand Curve by Less